Budget Information

Follow Up to District Budget Meeting - May 18, 2012

Thank you to those who were able to attend yesterday's District Budget Update Meeting. For those who missed the meeting, below are my remarks as well as Vice Chancellor Kevin McElroy's PowerPoint presentation

Your active participation in the planning necessary to get through this fiscal crisis is appreciated!

Chancellor Thor's Budget Update – May 17, 2012

After seeing the governor’s May budget revision on Monday, the senior management team felt it was important to let everyone know as soon as possible about our growing concern about the district’s budget. Those administrators are here with me today.

I’d also like to recognize members of our Board of Trustees who have joined us.

We are here because we are now four years into the most serious budget crisis California has ever faced. For the past few years, we have been fortunate to have one-time dollars to close our budget deficit . Our hope was that by the time we’d exhausted those dollars, California’s economy would have rebounded.

Unfortunately, that has not happened. Someday, California surely will recover. In the meantime, there is no clear end in sight to our continuing budget shortfall.

Due to a variety of still-evolving circumstances, the district must expedite planning to bring our expenses into line with our shrinking revenues. In other words, the moment we’d hoped would not arrive is here – and a little sooner than expected. We need to have a preliminary plan in place by the end of June to reduce our expenses by an additional $13 million before the end of 2012-13. That comes on top of the $4 million in cuts and position eliminations that we are implementing July 1.

What I have just laid out is the worst-case scenario. It is not unrealistic to think it may come to pass. If circumstances improve, it may be a little less severe. Still, we are compelled to plan responsibly for the worst-case scenario.

One reason we must begin preparing now is that we will not have a complete picture of our financial situation until after the November election. Waiting until after the election would not give us the time we need to work through the details of downsizing in a thoughtful and strategic way.

Governor Jerry Brown is banking on voters approving his package of sales- and income-tax increases in November to balance the 2012-13 budget. Passage of the governor’s tax initiative would stave off the most brutal cuts for community colleges, public universities and K-12 schools. It takes a balanced approach to ending the state deficit. However, there is also a competing tax measure on the ballot, for which a major advertising campaign is already under way. It is backed by a wealthy civil rights attorney named Molly Munger and is endorsed by the statewide PTA. This ballot measure focuses on funding K-12 schools only. It does nothing at all for community colleges.

A recent poll showed Gov. Brown’s tax proposal has only 54% voter support. The Munger initiative is polling within 1 percent of the governor’s initiative. Only one of the tax measures can win. Let me emphasize: Only one of the measures can win, the one that gets the most votes, and both could lose.

If the governor’s tax measure passes, it will put us closer to our best-case scenario, which Vice Chancellor Kevin McElroy will describe for you shortly. But the truth is that even the best-case scenario is really only the lesser of two evils. If the Munger tax measure passes with a higher number of votes, or if voters reject both measures, the worst-case scenario is inevitable.

Uncertainty about the election’s outcome in November isn’t the only risk we face.

We think the governor’s proposed budget for 2012-13 is unrealistic in its revenue projections. If state revenues do not materialize as projected – as they have failed to do for the past few years – we again will be facing deep mid-year cuts.

On top of that, the district has its own ongoing structural deficit, meaning that our budgeted expenses exceed our revenue.

A big contributor to our structural deficit is the two years of declining enrollment we’ve experienced. This enrollment drop has driven down our state apportionment funding. Unless we are able to bring our enrollments back up – which we do not currently anticipate – our base funding will remain at a lower level for a number of years to come. In that case, we need to permanently adjust our staffing downward to reflect funding for a lower number of students.

The district has been addressing our structural deficit for several years now using one-time funding, what we called the stability fund. Current projections tell us that our one-time funds will run out in 2012-13 even under the best-case scenario.

Budget planning is always a balancing act. Although it is essential that we continue to reduce our expenses, at the same time we must retain a level of programs and services that allow us to serve enough students to reach our funding base. And that requires people to teach and keep the colleges running.

As you will see, our budget assumptions have not changed dramatically. However, the collective evidence now points to the need to plan for the worst. That is what we are being advised to do by the state chancellor’s office.

We have allowed time for your questions at the end. But now I want to ask Vice Chancellor McElroy to give you a high-level overview of how the district’s fiscal situation has changed since our last round of town hall budget meetings. He will give you the broad outlines of our situation. We will be coming back to you with more detail at future town halls.

Before we move to questions, I would like to thank everyone whose hard work has brought us this far in meeting our fiscal crisis. I very much appreciate your dedicated and thoughtful work. Through your collective depth of knowledge and great caring, we have so far been able to minimize the impacts on both students and staff. I am incredibly proud of the work we have done to keep the district solvent, functioning well and moving forward.

Unfortunately, the situation is at a turning point and we must now prepare for additional cuts. It will take all our ingenuity, discipline and team effort to bring the district through this crisis. As distressing as this is for all of us, I believe we are up to this task. The results of our planning efforts over the past few years are the best evidence I can offer of how important good planning is.

I want to assure you that we will continue to engage in strategic discussions to maximize our revenues and effectively address our budget problems.

We also are working hard to recover lost enrollment. Both campuses are offering robust summer sessions, and Foothill is offering two summer sessions this year.

We will keep our course schedule as stable as possible for students.

We are continuing to work aggressively on generating additional revenue through entrepreneurial partnerships, grants and donations.

We must all work together to operate at full efficiency and exercise all possible economies.

We are being careful to maintain legally required reserves and a small cushion to deal with future surprises.

We continue to look for opportunities to move positions into other funds as an alternative to layoffs.

And we will aggressively continue our statewide advocacy efforts.

In closing, should you want to share with your colleagues who were unable to attend what was covered today, here are the CliffsNotes.

Due to a variety of changing circumstances, we must prepare quickly for the possibility of significant budget reductions sooner than expected. Depending on the outcome of the election, cuts and position eliminations could begin as soon as early 2013.

We need to plan for new ways to do our work and serve students within the limits of substantially reduced revenue. I am calling upon all of you to contribute to this planning effort. We need the campuses and Central Services to complete their preliminary plans for worst-case reductions by the end of June so together we can fine- tune them over the summer for final review in the fall and then presentation to the Board of Trustees.

This schedule will give the campuses time to coordinate their efforts in dealing with the impacts of further reductions. It will enable us to go through our shared governance processes and meet our legal obligations.

With a careful, collaborative and transparent process, I am confident we will arrive at the best possible response to this uncertain situation. I cannot tell you exactly what is in store for us. But I do know Foothill-De Anza will continue to be a great district. It will just be smaller and look a little different, no matter which scenario plays out.

So what can you do?

Actively participate in the planning process and advocate for your ideas.

Spend conservatively.

Definitely vote in November. On your own time, in your private life, please let your family, friends and neighbors know what’s at stake with the competing tax initiatives.

In these stressful times, it’s so important to treat yourself and others well.

And thank you for all that you do on a daily basis for our students and our communities.